Telefónica to buy T Italia holding

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Spain’s Telefónica finally sealed a deal to take part of a controlling stake in Telecom Italia at the weekend, ending months of uncertainty and thwarting the ambitions of Mexico’s América Móvil.

Telefónica is paying €2.3bn as part of a €4.1bn operation to buy out Pirelli, the Italian tyre company. Pirelli has controlled TI by owning with the Benetton family a large block of TI shares and nominating the majority of the board.

However Telefónica is joined in the acquiring consortium by a group of Italian investors which is taking a majority of the Pirelli stake and will be able to outvote the Spanish company. Telefónica will be able to nominate two TI board directors while the Italian investors will nominate 13 people.

Telefónica , the Benettons, insurer Generali and Italian banks Intesa Sanpaolo and Mediobanca are together to hold 23.6 per cent of TI and are paying €2.82 a share, 25 per cent over TI’s market price. A further capital increase could see more Italian financial investors enter the consortium.

The careful arrangements over power are designed to ensure that there is little political opposition to Telefónica buying into Italy’s dominant telecoms company. A deal between Pirelli and AT&T over control of TI collapsed recently with the US company blaming political and regulatory interference. América Móvil, which had been a partner with AT&T in those talks, had not formally dropped out but has no role in the new agreement with Telefónica .

Paolo Gentiloni, Italy’s communications minister, has already expressed satisfaction with the Spanish deal.

Telefónica had held previous talks with Pirelli but they foundered as the Spanish group had been seeking a separate agreement with TI over an industrial partnership. Telefónica is still seeking a similar arrangement but has decided to pursue talks with TI separately.

A deal on a joint venture, arrangements on purchasing or other agreements is nonetheless fundamental to Telefónica ’s move into TI. It must seek to explain why it is paying 25 per cent more than the market price of TI shares for a minor interest in a controlling consortium which itself holds less than a quarter of TI shares.

Pirelli said the deal was expected to be concluded by October. If finalised it will mark the end of an extraordinary and difficult venture for the tyre company which will have lost €3.2bn since overpaying for control of TI in 2001.

Marco Tronchetti Provera, Pirelli’s chairman, was TI chairman too until September last year. He resigned amid a dispute with the government of Romano Prodi over a restructuring at TI and possible asset sales.

Since then Mr Tronchetti has been seeking to sell all or part of his stake but seen various proposals fall apart. Pirelli said it would be paid €3.3bn from the Telefónica transaction and would be looking at investments in its core businesses.

The new consortium said it guaranteed the “full independence of the management of Telecom Italia”, which has just elected its third chairman in seven months. But people close to the talks have been talking about a shake-up of executives and a new strategy plan.

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